FLEXIBILITY, INSECURE WORK AND PRODUCTIVITY
SPEECH TO THE 11th ANNUAL WORKFORCE CONFERENCE
INNES WILLOX, CHIEF EXECUTIVE,
AUSTRALIAN INDUSTRY GROUP
16 November 2012
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Since we were last here, I am sad to say that it has been a year of
disappointment for business in the industrial relations arena.
At the last Workforce conference we had hoped, perhaps somewhat
optimistically, that some progress would have been made by now in
addressing the clear problems with the Fair Work Act and in achieving a
more flexible, productive and fair workplace relations system; a system
that would better meet Australia’s needs in the current troubled global
economic environment.
Instead, over the year, the economic imperative to improve the system
has become more urgent while conversely employers have faced a
worsening industrial relations system. As the Australian managing
director of Rio Tinto, David Peever, quite rightly said earlier this week,
industrial relations is the elephant in the room when it comes to the
national productivity debate. It is, it has to be said, a view widely held by
employers.
The fact is we simply cannot afford any more delay or regressive
changes to workplace relations laws.
The Fair Work Act Review identified many clear problems with the Act.
To leave all the big issues in the too hard basket for much longer can
only risk damaging our national competitiveness and the prospects for
key sectors of the Australian economy.
Today, I want to have a proper discussion about what really needs to be
done to fix the Fair Work Act to address the need to improve
productivity and flexibility in workplaces that face constant change and
to address some myths including about flexibility and casualisation.
We cannot be blind to the fact that many businesses face harsh global
and local economic conditions, intense competitive pressures and a
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very high exchange rate. No matter which way you cut it, we have
become a high cost economy.
To cope with this, industry needs a workplace relations system which
does not impose unnecessary barriers upon productivity and flexibility,
and which encourages flexible and innovative workplace arrangements.
Unions recoil every time we mention this F-word.
However, it's not only businesses that want flexibility. The evidence
points to the fact that individual employees also want more choice – to
help strike the right individual balance between work, study and family
life.
Also, the community needs more flexible workplaces to increase
workforce participation which is particularly important in the context of
the ageing population.
Unfortunately, despite these facts, unions and many misguided interest
groups are pushing to restrict flexibility for businesses and individuals.
The Economic Environment
We need to always keep in mind the overall economic context when
discussing the impact of the industrial relations framework in Australia.
The fact is that the mining boom is having far-reaching, positive impacts
on the Australian economy.
But the resources-fuelled higher dollar is also putting extraordinary
pressure on our non-mining, trade exposed industries. In
manufacturing, for instance, the workforce fell by 9 per cent (or around
95,000 people) in the four years to August this year.
The impacts of the high dollar are being compounded by other factors.
Post-GFC caution and pessimism has put the residential and
commercial construction sectors in the slow lane with flow-on effects
across the economy.
As shown in Chart 1, our labour productivity growth rates have trended
downwards for around a decade and a half (notwithstanding a regular
cyclical up-turn over the past year or so).
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Chart 1: Quarterly Growth (%) in Labour Productivity
1994 to 2012
2.0
1.5
1.0
0.5
0.0
‐0.5
‐1.0
Dec‐1994
Jun‐1995
Dec‐1995
Jun‐1996
Dec‐1996
Jun‐1997
Dec‐1997
Jun‐1998
Dec‐1998
Jun‐1999
Dec‐1999
Jun‐2000
Dec‐2000
Jun‐2001
Dec‐2001
Jun‐2002
Dec‐2002
Jun‐2003
Dec‐2003
Jun‐2004
Dec‐2004
Jun‐2005
Dec‐2005
Jun‐2006
Dec‐2006
Jun‐2007
Dec‐2007
Jun‐2008
Dec‐2008
Jun‐2009
Dec‐2009
Jun‐2010
Dec‐2010
Jun‐2011
Dec‐2011
Jun‐2012
‐1.5
Market sector GVA per hour worked
Linear (Market sector GVA per hour worked)
Source: ABS, National Accounts, Trend Data.
Importantly, disturbingly strong growth in our unit labour costs is
undermining our competitiveness. As Chart 2 shows, our unit labour
costs have been growing rapidly in the past few years and have
increased at the fastest rate for at least a quarter of a century according
to the most recent reading (year to end of June 2012).
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Chart 2: Growth in Unit Labour Costs in the Non-Farm Sector
1985 to 2012
Quarterly measures of year on year growth (%)
3.00%
2.00%
1.00%
0.00%
‐1.00%
‐2.00%
‐3.00%
‐4.00%
Sep‐1985
Sep‐1986
Sep‐1987
Sep‐1988
Sep‐1989
Sep‐1990
Sep‐1991
Sep‐1992
Sep‐1993
Sep‐1994
Sep‐1995
Sep‐1996
Sep‐1997
Sep‐1998
Sep‐1999
Sep‐2000
Sep‐2001
Sep‐2002
Sep‐2003
Sep‐2004
Sep‐2005
Sep‐2006
Sep‐2007
Sep‐2008
Sep‐2009
Sep‐2010
‐5.00%
year on year change in real unit labour costs
average annual change since 1985
Source: ABS, National Accounts, Trend Data.
The Australian Industry Group (Ai Group) is very firmly of the view that
the key to fixing the challenges to our competitiveness and to put us in
stronger shape to adjust to lower commodity prices and lower levels of
investment in the mining sector, is not to slash wages, working
conditions and living standards but to lift productivity.
There is a lot of silly talk about productivity in Australia at the moment.
 According to those at one end of the spectrum, the overwhelming
emphasis should be on further deregulation of the labour market.
 According to those at the other end of the spectrum, our current
workplace relations framework is as conducive to better
productivity growth as it ever will be – save the need for a bit of
fine-tuning and polishing here and there.
Ai Group is in neither of these camps.
The truth is that lifting Australia’s productivity performance requires
action on a number of fronts.
 Critically, this includes increasing the pace of innovation,
developing greater workforce skills and raising managerial
performance.
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 However, deriving full benefit from progress in these areas also
requires flexibility to introduce changes in workplaces and work
practices and the ability to tailor education-work-family tradeoffs
to suit individual employees.
 For many employers, existing workplace relations laws and
practices are not conducive to this sort of flexibility.
Lifting productivity also requires greater managerial focus on introducing
productivity-boosting changes and less focus on time-consuming and
unnecessarily complex compliance and regulatory obligations imposed
by workplace relations laws. Management needs less of this and more
time for productive endeavours such as, improving workplace cultures;
introducing new processes and technologies; and developing new
markets.
I am not arguing that we should dismantle our safety nets or abandon
the fundamentals of our workplace relations system. But I do think
there is plenty of scope for improvements in the system that would have
a material impact on our productivity growth and our living standards.
Those who run academic arguments about the lack of any link between
workplace relations laws and productivity should talk to real employers;
those who are struggling to compete in global markets. Thousands of
them are members of Ai Group and we talk to them every day. These
employers emphasise the obvious:
 Bargaining laws which have encouraged unions to pursue
restrictions on the use of contractors and labour hire, have led to
increased disputation and reduced flexibility;
 Transfer of business laws which have made it extremely difficult
for them to restructure and outsource work, impede their
competitiveness;
 General protections laws which have encouraged speculative
termination of employment claims, have increased their costs and
reduced their ability to maintain a high performing workforce; and
 Laws which have given the unions too much power have led to
more industrial disputes and less workplace harmony.
Despite the obvious challenges facing Australian businesses, unions
relentlessly push to restrict flexibility for employers. Invariably, this push
is dressed up with rhetoric about protecting employee rights.
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Often the arguments are based on myths rather than realities.
Unfortunately, the Federal Government has given weight to many of the
myths over the past few years.
Recent and proposed legislative changes
We have seen the Government implement an extraordinary series of
changes in response to union claims over the past few years:
1.
The Fair Work Act has been implemented, increasing union
power in over 120 areas.1
2.
Last year, the Government made extremely generous
amendments to the General Employee Entitlements and
Redundancy Scheme (GEERS) and has now introduced
legislation into Parliament to lock these changes in. The
changes deliver on a longstanding claim of the AMWU to protect
redundancy entitlements of up to four weeks per year of service
upon insolvency. Given that such generous redundancy
packages only tend to operate in heavily unionised workplaces
in manufacturing and a few other industries, AMWU members
stand to get a lot more out of the changes than other employees.
3.
In June this year, legislative amendments came into operation
significantly watering down the Building and Construction
Industry Improvement Act and reducing the powers of the
construction industry regulator – as sought by the CFMEU,
AWU, CEPU and other construction unions. The changes are
not in the community’s interests and unwind extremely
successful reforms introduced after the Cole Royal Commission.
4.
In June, FWA handed down its decision in the long running
Equal Remuneration Case in the social and community services
sector granting wage increases of up to 45% for employees in
the sector. The decision may have been very different were it
not for the Australian Government’s last minute commitment to
provide billions of dollars to fund the ASU’s claim. Legislation
has now passed through Parliament establishing a special
account to protect the $3 billion in funding.
5.
On 1 July this year, new legislation came into effect establishing
the Road Safety Remuneration Tribunal which has sweeping
powers to impose new pay rates and contract conditions upon
road transport companies, as well as their clients in industries
1
See the Annexure to Ai Group’s March 2012 Supplementary Submission to the Fair Work
Act Review.
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like manufacturing, retail and construction. The new laws deliver
on the TWU’s longstanding Safe Rates, Safe Roads campaign.
While no one doubts the need to improve road safety, there is a
lot of doubt about whether paying truck drivers more and
differently will do anything other than distracting attention away
from proven ways to improve road safety.
6.
Also, from 1 July another 30 or so pages were added to the Fair
Work Act to increase protections and union entry rights for
workers in the Textile Clothing and Footwear Industry. The
legislation delivered on longstanding TCFUA claims and it was
implemented on top of an already extraordinary level of
protection for TCF outworkers and employees. It is little wonder
that there are so few TCF companies left in Australia.
7.
Also in July (a busy month), new legislation came into operation
imposing tougher cabotage arrangements upon foreign flagged
ships, with the consequent effect that Australian companies
wanting to use these ships to transport their goods between
Australian ports must now pay significantly higher costs. The
new laws were pushed for by the MUA and other maritime
unions.
8.
In September the Government introduced the Fair Work
Amendment (Transfer of Business) Bill 2012 into Parliament
which was of course applauded by the State public sector
unions, but will impose inappropriate public sector conditions on
many private sector businesses which take over work
outsourced by State Governments. Since the introduction of the
Fair Work Act, industry has been expressing major concerns
about the transfer of business laws. The Bill does not address
any of these concerns and does not even incorporate the lone
transfer of business amendment recommended by the Fair Work
Act Review Panel. The Panel recommended that the transfer of
business laws be amended to make it clear that when
employees, on their own initiative, seek to transfer to a related
company the laws would not apply.
9.
The education unions also did not miss out on the Government’s
support. The Government intervened in support of the unions’
position in the Barclay v Bendigo TAFE case which, if sustained,
would have led to union delegates becoming virtually a
‘protected species’. Fortunately, in September the High Court
rejected the union and Government arguments.
I could go on. Other unions are lining up for their share. For example,
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United Voice wants nearly $2 billion to fund wage increases of up to
75%, for childcare workers.
It is not surprising that industry feels that, so far, employers have not
been given a ‘fair go’ on workplace relations. The traffic over the past
two years has been all one way and it has gone in the wrong direction.
Business owners and managers are resilient and up for a challenge, but
if things are made too difficult through ill-conceived legislative and other
changes the inevitable result will be more business closures, more offshoring and less Australian jobs.
Australia’s workplace relations system needs to be as flexible and
productive as possible, whilst ensuring fairness for both employees and
employers.
In is nonsense to accuse anyone who argues the case for more flexible
workplace arrangements as calling for the return of WorkChoices and it
has to stop. It really is nothing but a bit of baseless fear-mongering.
Australia deserves a more sophisticated debate about workplace
relations.
Also, arguments that the Fair Work Act does not impose any barriers to
productivity and flexibility improvement are simply wrong and need to be
rebutted. The barriers are very obvious. Some of the big problems were
identified by the Fair Work Act Review, but the Panel’s remit and
recommendations were inadequate to address the problems.
There needs to be a community-wide effort to respond to the challenges
faced by Australian industry.
Union insecure work campaign
The unions are running a campaign which they call their “insecure work”
campaign. Unfortunately, the name of the campaign is very apposite
because there would be no surer way to reduce the job security of
employees than implementing the unions’ proposals.
When it comes to union claims, the term “job security” is shorthand for:
 Restricting the use of labour hire and contractors;
 Restricting outsourcing;
 Restricting casual employment;
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 Negotiating excessive redundancy packages so that companies
cannot afford to lay off staff; and
 Locking unions into company decision-making processes when
workplace changes are being contemplated.
Of course, these union claims inhibit the ability of businesses to be
responsive and adaptable to market changes. In the real world the only
true job security for workers comes from ensuring that businesses
remain profitable and competitive. Flexibility is critical if this is to be
achieved.
Casual employment
The unions argue that there is a major casualisation problem in
Australia and that casuals are treated as second-class workers under
the law. These assertions are simply not correct.
The level of casual employment in Australia today is about the same as
it was 5 years ago and 10 years ago – about 20 per cent of the
workforce.
In fact according to the statistics on casual employment in Australia
released by the Australian Bureau of Statistics (ABS) earlier this year,
there has been a steady decrease over the past five years in the
proportion of employees engaged on a casual basis:
2007:
2009:
2011:
21%
20%
19%
Casual employment peaked in 2007 and is lower today than it was
seven years ago.
There is no casualisation problem in Australia. The problem is the
concerted attempts by unions and others to limit the flexibility for
employers and employees to agree upon casual work arrangements.
Imposing restrictions upon casual work arrangements would not be in
the interests of employers, employees or the community.
Employers need flexibility to maintain productivity and competitiveness.
Employees need flexibility to meet family responsibilities and lifestyle
choices.
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The community needs flexibility to achieve economic growth, high levels
of employment and increased workforce participation.
Australia’s future success depends upon the maintenance of flexible
workplaces, including maintaining employers’ flexibility to engage
casuals.
Independent contractors
Another myth perpetuated by unions is that there are a vast number of
people engaged under sham contracting arrangements and that laws
are needed to force these people into employer-employee
arrangements.
The problem is that whenever anyone goes searching for all of these
allegedly disadvantaged people, what they find are thousands of
carpenters, electricians, plumbers, truck drivers, IT professionals and
graphic designers who are very happy to be working for themselves and
running their own businesses.
About 10 per cent of the workforce is engaged under independent
contracting arrangements – around one million people. The
entrepreneurship and flexibility provided by these Australians is critical
to our country’s success.
Tough laws already exist to deal with any sham contracting
arrangements which are aimed at exploiting vulnerable workers. The
laws need to remain in place but most likely they will continue to have
very little use. Experience has consistently shown that the vast majority
of independent contractors have no desire to be employees.
Individual flexibility arrangements
Another union myth is that if we give individual employees the ability to
negotiate individual flexibility arrangements (IFAs) with their employer,
they will be disadvantaged.
It is hard to think of a workplace relations initiative other than IFAs that
promised so much but has delivered so little.
IFAs promised to allow individual employees to reach agreement with
their employer on flexible work arrangements which suited their needs.
The examples in the Explanatory Memorandum for the Fair Work Bill
show that significant flexibility was intended. Unfortunately, the reality
has been very different.
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IFAs can be entered into under the Flexibility Clause in modern awards
and under the Flexibility Term in enterprise agreements. Both forms of
IFA are problematic.
The Fair Work Act Review Panel identified some of the key problems,
including:
 The ability for an employee or employer to unilaterally terminate
an IFA with 28 days’ notice discourages the use of IFAs; and
 The refusal of unions to agree to include in enterprise agreements
Flexibility Terms which offer any meaningful flexibility, has
frustrated the policy intent.
The Panel recommended:
 Extending the 28 day period to 90 days; and
 Requiring that Flexibility Terms in agreements allow IFAs to be
made to deal with five specified matters, with the ability for parties
to agree upon additional matters.
The second proposal would be very worthwhile and needs to be
implemented without delay.
The first proposal is inadequate. Extending 28 days to 90 days will not
fix the problem. Employers and employees need to have the ability to
enter into IFAs for terms of up to four years. If they want a shorter term
or they want to include a termination provision, then of course they
should be free to include these in their IFAs. However, the idea that
employers and employees cannot be allowed to enter into a secure
arrangement for more than 90 days is very outdated.
The Panel’s proposal does not reflect the fact that in the real world if an
employer decides to unilaterally terminate an IFA an employee may be
left without childcare, for example, because centres are often full and
employees cannot readily change their childcare arrangements.. Also, if
an employee suddenly decides to terminate an IFA in the real world
companies often cannot readily change shift arrangements entered into
under that IFA.
IFAs are subject to the Better Off Overall Test and numerous other
protections.
The law needs to be changed without delay to ensure a workable
structure for IFAs; one that:
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 Recognises that employers and employees need to be allowed to
agree upon flexible arrangements that suit their needs, provided
that the employee is better off overall compared to the award;
 Takes into account the genuine preferences of the individual
employee in determining whether he or she is better off overall;
and
 Prevents unions and other external parties blocking meaningful
flexibility for employees and employers.
It is disappointing that IFAs were not on the agenda for the
Government’s first tranche of amendments arising from the Fair Work
Act Review. This is a major priority and Ai Group intends to keep
pressing for the necessary amendments to be made to the law.
In conjunction with the necessary legislative changes, Ai Group is
pursuing changes to FWA’s Model Flexibility Clause in modern awards
(which enables IFAs to be made) as part of the Modern Awards Review
2012. This matter has been referred to a Full Bench of FWA and will be
heard next year. It is important that the necessary amendments are
made to the Fair Work Act before the case is heard, because a number
of the problems with the Model Flexibility Clause can only be properly
addressed through legislative change.
Right to request flexible work arrangements
The provisions of the Fair Work Act which give employees the right to
request flexible work arrangements are working well and do not need to
be amended.
A vast array of interest groups, as well as unions, are pushing for the
right to request provisions to be expanded to include:
 Wider rights to request; and
 Access to arbitration if agreement is not reached.
The existing provisions strike the right balance between the interests of
employers and employees.
Of course employees who do not have a formal entitlement under the
Act can still make a request for flexible work arrangements. Every day
in hundreds of workplaces requests for flexible work arrangements are
made and granted. In the vast majority of cases the provisions of the
Act are not needed or used.
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Most employers try very hard to accommodate reasonable requests
from their employees for flexible work arrangements.
Ai Group strongly opposes FWA having the power to arbitrate where an
employer does not agree to an employee’s request. This would impede
the rights of employers to manage their businesses in a productive and
efficient manner.
This issue was heavily contested between employer groups and unions
during the development of the Fair Work Act and again during the Fair
Work Act Review. Fortunately, the Review Panel did not support giving
FWA arbitration powers in relation to the right to request.
Fair Work Amendment Bill 2012
Before finishing I should mention Ai Group’s view on the Fair Work
Amendment Bill which is currently before Parliament.
The Bill includes three main elements:
1.
It implements some of the ‘less controversial’ recommendations
made by the Fair Work Act Review Panel;
2.
It makes some changes to the structure and operation of FWA,
including renaming it the Fair Work Commission and providing for
the appointment of two Vice Presidents of FWA; and
3.
It implements a new process for determining the most suitable
funds to be listed as default superannuation funds in modern
awards.
Ai Group has expressed disappointment that the Bill does not address
the big problems with the Fair Work Act and we have urged Parliament
to pass the Bill without delay (with some amendments that we have
proposed) so that the main issues can be focussed upon.
There has been a lot of speculation about the Government’s intentions
regarding the FWA Vice President positions provided for in the Bill. It is
essential that the appointments are made on merit. The Tribunal has a
long and proud history and occupies an important and respected place
in Australian society. This will be threatened if appointments to FWA are
not made on merit.
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Conclusion
Ai Group will keep fighting hard to achieve a more flexible, productive
and fair workplace relations system. Of course fairness is important for
employees and employers and, as I have argued, we have been
heading the wrong way down a one way street over the past few years;
which is always a bad idea.
The interests of employers, employees and the whole community rests
with ensuring that Australian businesses are lean, agile and competitive
in global markets.
There are many challenges but Australian businesses have proved
themselves to be adaptable to change, provided that unnecessary
barriers are not imposed upon them.
Some important changes need to be made to the Fair Work Act to
remove barriers to flexibility and productivity, and to address the
legitimate concerns of employers. We are not asking for the Fair Work
Act to be scrapped but for a series of sensible changes to be made to
address problems which have been widely identified by industry groups.
This message is equally relevant to the Government and the
Opposition. The sensible changes that we are proposing deserve the
support of all parties.
Along with making these necessary changes, the retrograde proposals
being pursued by unions under the banner of “job security” need to be
roundly rejected.
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